IDEAS home Printed from https://ideas.repec.org/a/fip/fedreq/92734.html
   My bibliography  Save this article

A Life-Cycle Model with Individual Volatility Dynamics

Author

Listed:
  • Marios Karabarbounis

Abstract

This article solves a heterogeneous-agents, life-cycle model with idiosyncratic, time-varying volatility. Volatility is modeled based on an ARCH specification. I compare the life-cycle behavior of savings and consumption in a model with idiosyncratic volatility versus typical models with constant income risk. Idiosyncratic volatility generates a larger incentive to save precautionarily and, as a result, a lower consumption inequality.

Suggested Citation

  • Marios Karabarbounis, 2020. "A Life-Cycle Model with Individual Volatility Dynamics," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 4, pages 159-171.
    • Handle: RePEc:fip:fedreq:92734
    DOI: 10.21144/eq1060402
    as

    Download full text from publisher

    File URL: https://www.richmondfed.org/-/media/richmondfedorg/publications/research/economic_quarterly/2020/q4/karabarbounis.pdf
    File Function: Full text
    Download Restriction: no
    File URL: https://libkey.io/10.21144/eq1060402?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Yongsung Chang & Jay Hong & Marios Karabarbounis & Yicheng Wang & Tao Zhang, 2022. "Income Volatility and Portfolio Choices," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 44, pages 65-90, April.
    2. Yongsung Chang & Jay Hong & Marios Karabarbounis & Yicheng Wang & Tao Zhang, 2022. "Income Volatility and Portfolio Choices," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 44, pages 65-90, April.
    3. Fatih Guvenen, 2009. "An Empirical Investigation of Labor Income Processes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 58-79, January.
    4. Fatih Guvenen, 2007. "Learning Your Earning: Are Labor Income Shocks Really Very Persistent?," American Economic Review, American Economic Association, vol. 97(3), pages 687-712, June.
    5. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2014. "Consumption and Labor Supply with Partial Insurance: An Analytical Framework," American Economic Review, American Economic Association, vol. 104(7), pages 2075-2126, July.
    6. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2017. "Optimal Tax Progressivity: An Analytical Framework," The Quarterly Journal of Economics, Oxford University Press, vol. 132(4), pages 1693-1754.
    7. Fatih Guvenen & Anthony A. Smith, 2014. "Inferring Labor Income Risk and Partial Insurance From Economic Choices," Econometrica, Econometric Society, vol. 82, pages 2085-2129, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yongsung Chang & Jay Hong & Marios Karabarbounis & Yicheng Wang & Tao Zhang, 2022. "Income Volatility and Portfolio Choices," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 44, pages 65-90, April.
    2. Yongsung Chang & Jay Hong & Marios Karabarbounis & Yicheng Wang & Tao Zhang, 2022. "Income Volatility and Portfolio Choices," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 44, pages 65-90, April.
    3. Alejandro Badel & Mark Huggett, 2014. "Interpreting Life Cycle Inequality Patterns as an Efficient Allocation: Mission Impossible?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(4), pages 613-629, October.
    4. Yang, Guanyi, 2018. "Endogenous Skills and Labor Income Inequality," MPRA Paper 89638, University Library of Munich, Germany.
    5. Christian A. Stoltenberg & Swapnil Singh, 2020. "Consumption insurance with advance information," Quantitative Economics, Econometric Society, vol. 11(2), pages 671-711, May.
    6. Yavuz Arslan & Bulent Guler & Temel Taskin, 2021. "Price Search, Consumption Inequality And Expenditure Inequality Over The Life ‐Cycle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(1), pages 295-320, February.
    7. Koşar, Gizem & van der Klaauw, Wilbert, 2023. "Workers' Perceptions of Earnings Growth and Employment Risk," IZA Discussion Papers 16013, Institute of Labor Economics (IZA).
    8. Raül Santaeulàlia-Llopis & Yu Zheng, 2018. "The Price of Growth: Consumption Insurance in China 1989–2009," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(4), pages 1-35, October.
    9. Sarah Meyer & Mark Trede, 2016. "Explosive earnings dynamics: Whoever has will be given more," CQE Working Papers 4716, Center for Quantitative Economics (CQE), University of Muenster.
    10. Primiceri, Giorgio E. & van Rens, Thijs, 2009. "Heterogeneous life-cycle profiles, income risk and consumption inequality," Journal of Monetary Economics, Elsevier, vol. 56(1), pages 20-39, January.
    11. Hamish Low & Costas Meghir & Luigi Pistaferri, 2010. "Wage Risk and Employment Risk over the Life Cycle," American Economic Review, American Economic Association, vol. 100(4), pages 1432-1467, September.
    12. Fatih Guvenen & Fatih Karahan & Serdar Ozkan, 2018. "Consumption and Savings Under Non-Gaussian Income Risk," 2018 Meeting Papers 314, Society for Economic Dynamics.
    13. Vincent Sterk & Petr Sedláček & Benjamin Pugsley, 2021. "The Nature of Firm Growth," American Economic Review, American Economic Association, vol. 111(2), pages 547-579, February.
    14. Christian Bayer & Moritz Kuhn, 2018. "Which Ladder to Climb? Decomposing Life Cycle Wage Dynamics," CESifo Working Paper Series 7236, CESifo.
    15. Yongsung Chang & Jay H. Hong & Marios Karabarbounis, 2018. "Labor Market Uncertainty and Portfolio Choice Puzzles," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(2), pages 222-262, April.
    16. Christopher Busch & David Domeij & Fatih Guvenen & Rocio Madera, 2018. "Asymmetric Business-Cycle Risk and Social Insurance," Working Papers 1031, Barcelona School of Economics.
    17. Robin Jessen & Johannes König, 2020. "Hours Risk and Wage Risk: Repercussions over the Life-Cycle," Discussion Papers of DIW Berlin 1845, DIW Berlin, German Institute for Economic Research.
    18. Theloudis, Alexandros, 2021. "Consumption inequality across heterogeneous families," European Economic Review, Elsevier, vol. 136(C).
    19. Joseph Altonji & Disa Hynsjo & Ivan Vidangos, 2023. "Individual Earnings and Family Income: Dynamics and Distribution," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 49, pages 225-250, July.
    20. Christian Bayer & Moritz Kuhn, 2018. "Which Ladder to Climb? Wages of workers by job, plant, and education," 2018 Meeting Papers 648, Society for Economic Dynamics.

    More about this item

    Keywords

    Volatility; Economics;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedreq:92734. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Pascasio (email available below). General contact details of provider: https://edirc.repec.org/data/frbrius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.